Wikinvest Wire

Las Vegas - Miami home price death match

Tuesday, July 29, 2008

The May report(.pdf) on the S&P Case Shiller Home Price Index shows nine new all-time records for annual price declines, ten areas with double-digit drops, and seven areas with losses exceeding 20 percent.
The 10-City Composite posted a new record decline of 16.9 percent and the 20-City Composite recorded a record drop of 15.8 percent paced by Las Vegas and Miami, two former housing bubble hotspots that now appear to be in some sort of death match with both losing badly.

Phoenix looks likes it wants to get in there too and "mix it up".
David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, noted:

The overall real estate market continued to slide in May, with the 10-City and 20 City Composites declining by 1.0% and 0.9% for the month, respectively. Since August 2006, there has not been one month where we have seen overall price increases, as measured by the two Composites. Regional patterns stand out: the Sunbelt led by Miami, Tampa, Phoenix, Las Vegas, San Diego and Los Angeles saw the biggest booms and now see the largest declines. The Northeast, including Boston and New York, is cyclical but less volatile while the Midwest, paced by Detroit and Cleveland face difficult local economies. One possible bright spot is that seven MSAs, while still negative, showed some improvement in their annual figures over those reported last month. Looking at the monthly statistics, seven of the 20 metro areas were positive for the May/April reading.
Note the reordering of labels in the chart at the top of this post that correspond to the top-to-bottom position at the right of the chart. Washington D.C. has now held its post-2000 gains the best, followed by Los Angeles, New York, and Miami, with Miami losing ground fast.

Seattle and Portland have also surged ahead of more bubbly areas such as San Diego and San Francisco.

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mr. rational said...

I see the stock market is up today despite the latest news on house prices. I guess the logic is just too tough for Wall Street speculators to figure out so I'll help:
1) 70+% of GDP comes from consumption
2) Consumption has been supported by debt from home 'equity' loans
3) Home 'equity' is disappearing and rapidly going NEGATIVE in many cases
4) Consumption will fall as home 'equity' becomes unavailable
5) A recession, at least, is inevitable
6) Recessions are BAD for the stock market
I shake my head every day as people manage to ignore these, and many other, basic facts.

Dan said...

What about inflation expectations? If I hold a stock that's worth $x.xx today and is with a financially sound, "recession-proof" company, and the Fed decides to inflate the dollar, does not the value of the stock have to go up to make up for inflation? Could many increases in stock price seen to be building in some inflation expectations? At least as an initial reaction....

JIMB said...

mr. rational - 100% of the economy comes from production. There is nothing that isn't consumed that isn't first produced by someone .... Whatever balance we have left over is savings; and precious little of that these days.

mr. rational said...

Hi, jimb
I'm unclear what you're saying. There is no production if there's no demand for goods. Consumers account for 70% of that demand. So, if consumers are hurting, demand will dry up and production will follow.
If GDP is a measure of economic health and GDP is 70% based on consumer spending and consumer spending is largely based on home 'equity' withdrawal and home 'equity' is based on house prices and house prices are in free fall, then it seems to follow that GDP will contract and this will result in a recession/depression which is generally bad for stock prices.
Are you disagreeing or just pointing out that our savings rate is pathetic?

mr. rational

Anonymous said...

Mr. Rational,

You're implying that consumption precedes production. That's Keynesian economics. Austrian economics says that production must precede consumption, and that production thereby creates its own demand.

Otherwise, you're absolutely correct that this country is headed for disaster.

mr. rational said...

You write that "production creates its own demand."
I'm a small business owner and I only WISH I could create my own demand. Man, that would be so sweet! There is absolutely no question, based on my lengthy experience, that simply producing something does NOT create a demand for it. You may recall the Edsel and many other failed PRODUCTS.
You have to wonder when you read something like that. Frankly, it sounds like something only an economist could dream up.
At least we agree on one thing... this country is in deep trouble.

mr. rational said...

I wanted to point out this paper for the benefit of those, such as I, who wonder where phrases such as "production creates its own demand" come from. Check it out here:

Here's a quote from the paper:

"To anticipate the conclusions to this paper, it will be argued that although there are a number of possibilities, it is likely that the point of origin of this phrase
was found in the writings of John Stuart Mill. But it will also be argued that the phrase ‘supply creates its own demand’ is entirely inadequate as a definition of
‘Say’s Law’, not just failing to capture the full meaning that classical economists
had intended to convey but seriously misleading if one wishes to understand how
classical economists understood the way in which economies actually work."

Thank God there are actually some economists out there who are capable of rational thought. This ridiculous proposition is a PERFECT example of how things can get so screwed up by people who are glib but lack common sense.

It reminds me of a typical Greenspan lecture filled with doublespeak and nonsense that, in the end, leaves the country in a financial mess.

But, remember, at one time, Greenspan was "The Maestro." To me, he'll always be "The Mess-tro."

Anonymous said...

Phoenix also has the County sheriff chasing out all the brown people, who may, or may not, have the correct paperwork required to work in the US.
Some of them own/owned houses and a lot of them are/were renters.
In addition to the construction industry providing little employment, they don't enjoy living in fear.

"Latino neighborhood slowly disappearing in central Mesa"

Mo said...

Miami prices are still so out of whack! I have a blog about it:

Tell me what you think about my stories.

Anonymous said...

Great read on Vegas Real Estate, thanks for the post will save and share.

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